Want to Avoid Unnecessary College Debt? Think Twice Before Borrowing and Spending

National nonprofit Guidewell Financial Solutions offers these financial tips to help college students and their parents avoid student loan repayment problems after graduation.

College students who graduated last spring began life in the real world further in debt than any class before them. Young adults who started college this fall will probably leave school owing even more. However, students and their families can buck this trend if they limit the amount of debt they incur, live on a budget, and keep unnecessary expense to a minimum.

How Much Is Too Much?

Student loans live on long after graduation. When you leave school, a chunk of your paycheck will go toward repaying what's owed for 10-to-35 years. This means any money you spend now may affect your ability to buy a car, a home, or even start a family down the road."

Glenn Smith, Certified Financial Counselor

Guidewell Financial Solutions Director of Counseling and Client Services Nina Heck says students who take out loans without considering how much they really need are likely to end up owing more than they expected. “Often times the amount of funding available may exceed the cost of tuition, and it’s very tempting to take out all the money that’s offered, but it can really bog you down once you have to pay it back.”

Certified financial counselor Glenn Smith agrees. He says, “Student loans live on long after graduation.  When you leave school, a chunk of your paycheck will go toward repaying what’s owed for 10-to-35 years. This means any money you spend now may affect your ability to buy a car, a home, or even start a family down the road.”

Before obtaining a loan, Smith recommends students sit down with their parents and discuss three major questions: 1) If I take out this loan, how much will repayment cost each month and for how long?  2) How much income can I realistically expect to bring in while I’m paying back what I owe? 3) Once I make the loan payments each month will I still have enough money left over to survive?

If the answer to the final question is “no,” stop and brainstorm ways to reduce college costs. Smith says, “This may involve a shift in priorities.  For example, it may mean attending community college and living at home at first, going to school in-state, or going to school part-time, so you also can work. If you ultimately plan to teach or work for a nonprofit, you may qualify for discharge or forgiveness on certain federal loans.  The point is to realistically evaluate your present and future so you won’t be blindsided once you leave school.”

A Budget for Now and Beyond

Heck says, “During the school year, it makes sense for both students and their parents to set up and stick to a budget.  This is the best way to know where your money is going.  Keep a log of your expenses until you know for sure what you are averaging and cut back when you see some items are excessive.” 

Smith also recommends students and parents regularly fine tune their spending plans. “Whenever circumstances change, your budget will, too.  Once students have been in school a couple of months, this is the perfect time to revisit your budget.  By then, you’ll have a better idea of what costs will run.  Also take another look when you graduate.”

Needs vs. Wants

When young adults leave home for the first time, peer pressure and Spring Break loom large.  College students who understand how credit cards work are less likely to fall prey to unnecessary splurges. From a credit perspective, what do students need to know?  Heck says, “Making minimum monthly credit card payments won’t hurt your credit score, but it can take up to 10 years longer to pay off what you owe.  And as a result, you’ll pay a lot more interest.”

Heck also advises students to avoid obtaining store cards for discounts on merchandise. “Having several puts you at greater risk of losing a card or becoming a victim of identity theft. If you charge enough to exceed more than 40 percent of your credit limit, this may put a dent in your credit score.”

For those students and parents who have never budgeted, Smith says, “No worries! We have a remedy: Guidewell Financial Solutions provides free, confidential financial counseling at our local offices and by phone. We can help you evaluate your income and expenses and come up with a spending plan that works.  If you’re concerned about keeping costs in check, we can help you find ways to stay within your budget.  If you’ve already run up your credit limit, we can even help you design a strategy for getting back on track.”

For an appointment with Guidewell Financial Solutions, call 1-800-642-2227.  For free educational resources or to learn more about the agency’s financial counseling and coaching initiatives, visit the agency website.  The more college students and their families learn now, the better prepared they’ll be when college is over and the student loans come due.

Guidewell Financial Solutions (formerly Consumer Credit Counseling Service of Maryland and Delaware) is an accredited 501(c)(3) nonprofit agency.   Maryland License #14-01 / Delaware License #07-01.